Introducing myRA for 2015

Saving enough to take a trip or buy a new car can be tricky, saving for something as huge and open-ended as retirement is downright intimidating. Everybody everywhere needs a little help to get started with that level of savings, but not everyone has access to an employer-based 401(k) that can simplify the process. Starting in 2015, that’s all going to change — no matter who you are or where you work, you can contribute to an all new savings product: myRA. myRA stands for my Retirement Account.

How MyRA Works

MyRA is a new spin on traditional Roth IRAs that allows virtually every American to participate in a secure form of long-term savings. Contributions as low as five dollars can be deducted directly from your payroll check and there aren’t any maintenance fees to nickel and dime your savings away. Your savings are also portable, unlike with an employer-based savings plan. The MyRA is a Roth account, i.e., you contribute after-tax dollars. Withdrawals in retirement, including the earnings, are tax-free. Early withdrawals of your contributions, but not the earnings, can also be withdrawn tax-free at any time. It may sound pretty perfect, but there are a few catches, including:

Lower return rate. MyRA is backed by Treasury Bonds, which have never yielded a ton of interest. As you grow your MyRA, the rate will adjust to account for the bonds your account is invested in, but currently rates are in the low single digits. Despite this, MyRA is a valuable savings tool — there’s absolutely no risk of your account losing money.

Small contribution cap. All Roths allow a yearly contribution of up to $5,500, but none are capped at a lifetime $15,000 like MyRA. When you reach your contribution cap, you’ll have to roll your savings into another type of IRA or take some of the money out — fortunately, you can withdraw your personal contributions at any time without penalty. If you’re treating MyRA like a piggy bank, this is a decent setup, but don’t assume it’ll be your IRA for life.

Income qualifications. MyRA was designed with low to middle income investors in mind, so income limits do apply. Individuals can earn up to $125,000 a year; couples up to $191,000. MyRA has no fees involved and few limited penalties, making it ideal for lower income groups who have never been able to have retirement savings before.

Account lifetime limit. The lifetime of the MyRA is short — a mere 30 years — so if you plan on using it, even if you don’t think you’ll max it out in that time frame, you’ll need an exit strategy. After 30 years, you have to choose to reinvest your money or withdraw it and potentially pay a small penalty on the interest. Since MyRA is designed as a bridge to larger savings plans like Roth IRAs, most people won’t encounter this problem.

MyRA is Designed for Niche Savers

MyRA was designed primarily for those folks who struggle to make ends meet, be they students working at their first real job or underemployed workers who know that the paycheck they bring home will soon be swallowed by a mound of bills. By deducting just $5 a paycheck, even these people, who normally don’t save, can start a small nest egg.

It may not seem like much, but the sooner savers start putting money back for retirement, the bigger their stash will be. Nearly anyone can spare $5 a week from their budgets. In just a year, that could add up to over $240 — in five years, that same weekly contribution means $1,279 in savings and earned interest. In almost no time, a five dollar bill becomes a large enough amount of money to turn around and place into a higher yielding investment account. That’s the goal of MyRA and from the outside looking in, it should easily accomplish its purpose.

You can sign up for a MyRA account at the end of 2014 through the MyRA website and before you know it, you’ll be saving like a pro. If you’ve never had a retirement account before, this is the perfect opportunity to get into the habit of contributing to one, with no risk at all to your contributions.